Keynes’s ‘Revolving Fund of Finance’ and Transactions in the Circuit

Keynes’s primary motivation in writing “Alternative theories of the rate of Interest” and “The “ex-ante” theory of the rate of interest” was to counter attempts by Ohlin and others to recast his liquidity preference theory as no more than a supply and demand model of the determination of the rate of interest. This rearguard action was ultimately unsuccessful, given the profession’s ultimate acceptance of Hicks’s IS-LM analysis as a summary of the General Theory. However, it also had a positive outcome, as tussling with Ohlin’s arguments led Keynes to propose that investment finance was “an additional demand for money” (Keynes 1937b: 247) to the General Theory’s triumvirate of transactions, precautionary and speculative demands.